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The United States tries to help people save for retirement. We have tax incentives. We have private-sector innovations such as workplace retirement plans that automatically enroll us and increase our savings rates over time.

Even so, we’re probably not saving enough. In 2014, retirement savers in plans administered by Vanguard saved, on average, about 10% of their income, including any matching contributions from their employers. Vanguard recommends a target savings rate of 12% to 15%, including the match.

One reason for the shortfall might be that we don’t speak enough German.

We speak, therefore we save (or not)

Research by Keith Chen, a behavioral economist at UCLA, suggests that there’s a link, maybe a causal link, between a speaker’s language and his or her propensity to save.

Some languages such as English make a grammatical distinction between the present and the future. If I want to describe today’s weather, I say, “It is raining today.” If I want to forecast tomorrow’s weather, I change tenses: “It will rain tomorrow.” Linguists categorize English and languages with similar treatment of tenses as strong future-time reference (strong-FTR) languages.

Weak-FTR languages such as Estonian, German, and Chinese make weaker demarcations between the present and the future. The German phrase “Morgen regnet es” is written in the present tense, Chen explains, but it means “It will rain tomorrow.” (I’ll take his word for it.)

Chen finds that those who speak weak-FTR languages are more likely to save and, on average, accumulate more wealth for retirement than those who speak strong-FTR languages.

Swiss Family Saverson

The chart below, from Chen’s paper, displays savings rates, including both the private and public sectors, for countries in the Organization for Economic Cooperation and Development.

Chen also explores language and saving at the household level. Our propensity to save is influenced by economic and demographic variables such as income and education. Cultural values such as our belief in the importance of family or whether we think most people can be trusted also influence the tendency to save. Even after accounting for these variables, however, Chen finds that a language’s grammatical treatment of the present and future has an effect on savings behavior.

Consider two Swiss families whose income, education, and values are more or less identical. One speaks Swiss German, a weak-FTR language. The other speaks Swiss French, a strong-FTR language. The German-speaking family would, on average, tend to save more.

Source: M. Keith Chen

Your retirement is now

Chen’s research about the way language shapes our “intertemporal behavior” reminded me of work by Hal E. Hershfield.* Hershfield and his collaborators used virtual reality goggles to create a greater sense of identification between twenty-somethings and the retirees they will one day become. Participants who met their future selves through virtual reality goggles were more likely to save for retirement.

But what if we don’t speak German or own a pair of virtual reality goggles? One strategy is to make our long-term financial goals more vivid in the present. We can spend a few minutes imagining our future selves. How will they spend their time? Where will they live? And how much savings will they need to make this imagined future a reality?

We can also describe our savings goals more vividly. If “retirement” sounds like an abstraction, maybe “hiking the Red Rocks of Sedona” or “working with my granddaughter on her science-fair project” can make the future seem less removed from our present.

Andy Clarke

Andy is a senior investment strategist in Vanguard Investment Strategy Group. Before joining Vanguard in 1997, he worked at Morningstar. During his tenure at Vanguard, Andy wrote "Wealth of Experience," an introduction to investing based on ordinary people's stories about what has—and hasn't—worked as they've tried to meet their financial goals. Andy holds a B.A. from Haverford College and an M.S. from West Chester University. He is a CFA® charterholder.

Comments

MG S. | June 5, 2015 7:25 pm

Overlooked in this: the language people speak correlates strongly to their genetic heredity. It’s a bit silly to claim that speaking German is the issue. Anyone can learn to speak German, but I doubt that will appreciably alter one’s programming, largely inherited from parents.

Actually BEING German (or Swiss, or Finnish) is a lot more likely to predict things like future time orientation, ability to restrain present desires for future goals, and the overall general intelligence required to have a coherent picture of how to get from a complex present situation to a complex future situation via a complex series of intervening behaviors.

Andy, as a student at Widener and UPenn, I spoke and read English, French, Spanish, German, Latin, a bit of Greek and Russian, and a small smattering of Arabic and Sanskrit. I still use these languages or dabble in them, and added a bit of Finnish, Swedish, and Icelandic

But when it comes to saving/investing, work ethic, and other things I learned that my habits line up nearly entirely with those of Finns studied for investment strategies. It so happens that my ancestry is very strongly Finnish American. I’m also happiest at 20 below zero, instinctively find my way through dense forest (though get lost in shopping malls), and instinctively knew how to skid logs out of dense timber stands with no prior training. We are just learning about the role of heredity in one’s economic thinking and behaviors.

Fred B. | May 19, 2015 7:31 am

Carl S. | May 16, 2015 10:58 am

This is a very interesting discussion for somebody like me who likes to examine the fundamental causes of things being the way that they are (for better or for worse in terms of their present and probable future impacts on the many aspects of human welfare).

While not an expert on statistics, a crucial element of statistical analysis that I understand is that the correlation “proved” by statistics — to whatever “level of confidence” — does not prove “causality.” Determining cause and effect requires a deeper analysis of the data.

In this case, the graph illustrates that the countries with weak FTR languages and high savings rates are northern European countries (with similar languages, except for Finland) and Japan. These countries are among the world’s wealthiest and healthiest because the people place a high value on education and work. Those characteristics more logically explain high rates of saving/investment than a quirk of language. I hope that Professor Chen’s research into this academic fluff is not being supported by public grant funds.

BTW, The German expression “Morgen regnet es” translates to “Tomorrow it is raining.”

ML P. | May 29, 2015 12:55 pm

“Morgen regnet es” translates most accurately to “It rains tomorrow”, just as we might say, “The Mariners play tomorrow night,” or “My aunt arrives tomorrow.” The future is implied but we phrase it as happening in the present.
That said, I agree; culture, wealth, religion and geography are far more influential than language structure.

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For more information about Vanguard funds, visit vanguard.com or call 877-662-7447 to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing.

Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.

Investments in bond funds are subject to interest rate, credit, and inflation risk.

Diversification does not ensure a profit or protect against a loss.

Investments in stocks or bonds issued by non-U.S. companies are subject to risks including country/regional risk and currency risk. Stocks of companies based in emerging markets are subject to national and regional political and economic risks and to the risk of currency fluctuations. These risks are especially high in emerging markets.

All investing is subject to risk, including the possible loss of the money you invest.